Are we already in a recession?

Many people are warning that if the government goes over the “fiscal cliff” next week, as seems increasingly likely, the U.S. economy could tumble back into recession.

But what if we already have?

Despite some misleading headlines, and some cheerleading in certain quarters, there are plenty of reasons to be worried that the economy could already be shrinking again, even before the wave of tax hikes and spending cuts scheduled for January.

Money manager John Hussman, chairman of Hussman Funds, is among those who think it is. “We continue to believe that the U.S. economy joined a global economic downturn during the third quarter of the year,” he wrote to investors recently.

He notes that most of the forward-looking indicators, including “industrial production, capacity utilization, real disposable income, real personal consumption, real sales, retail and food service sales, and real manufacturing and trades sales” are all pointing down.

The Economic Cycle Research Institute agrees, and recently announced that a recession may have begun as long ago as July. The combined economic signal coming from industrial production and personal income, noted ECRI in a recent report, “has never occurred outside a recessionary context in over half a century - but it’s occurred in every recession.”

Walk around the mall this week: You’ll see a lot of terrific sales, and probably not that many customers. Retailers have been forced to slash prices to unload their inventory after what looks like a weak Christmas.

MasterCard reports that holiday spending was up just 0.7% this year, a fraction of the 4.1% predicted by the National Retail Federation. MasterCard’s report, based on spending on its cards, is only the first on the topic and it is not the final word, but it is ominous.

No wonder retail stocks on Wall Street are rolling over. Stocks like Target and Macy’s have fallen about 10% since the week before Thanksgiving. Tiffany & Co. has lost 15% since the start of November.

The holiday season is vital to the economy: 70% of the U.S. economy is based around personal consumption.

Many businesses came into the final two months of the year loaded up with inventory. According to the U.S. government, retail inventories in October were 8.2% higher than a year earlier, lead by a stunning 21% rise in the inventories of new cars and parts. (This may be a terrific moment to shop around for a new car). Retail inventories are the highest on record, and the ratio of inventories to sales has spiked to the highest levels since 2009.

The economic recovery of the past few years has been based on three things: Loan defaults by households, massive deficit spending by the government and enormous money printing by the Federal Reserve. It is hard to see how any of these, let alone all three, can continue indefinitely.

Missed in most recent jobless reports was the news that the number of employed people in the United States, age 25 to 54, actually fell by half a million - before seasonal adjustments - from October to November.

Charles Biderman, chief executive of economic research group TrimTabs, says December payroll figures may be flattered by a rush to recognize income ahead of January 1 tax hikes, but even if this happens it may inevitably lead to a dismal January as the true picture becomes clearer.

The most positive news recently has been the continued improvement in the housing market. I happen to think this is real, and sustainable. I think Sunbelt real estate has bottomed out (I’m writing this in a Miami condo whose value is up about 50% over the past year). But we can’t just assume that a housing recovery will filter through dollar-for-dollar into the economy. A lot of that real estate was underwater on its mortgage. The rise in price may reduce the shortfall, but it does not increase personal wealth or income.

Naturally, we will have to wait and see what happens next. I am not surprised that we are likely to head over the fiscal cliff. Our unhappy binational state, in which Red and Blue America are forced to try to get along, has produced complete dysfunction in Washington. I am only surprised that so many people are surprised.

As for the economy: Don’t think that if we were already back in recession “someone would have told us.” It doesn’t work like that. Because of the lag-time involved in collecting the data they track, economists don’t tend to know we’re going into a recession until we are halfway back out again.

Remember the Great Recession that began in December, 2007? The economists at the National Bureau of Economic Research, who are basically the official scorekeepers of recessions, didn’t discover the recession until December, 2008 - a year late, and only a few months before the episode (officially) ended.

Indeed I distinctly remember any number of economists, financial gurus and money managers during the first half of 2008 telling me (and every other reporter) that we were already “past the worst” and that the economy was going to pick up in the second half of the year.

The previous recession began in March, 2001 - but the NBER didn’t call it a recession until November 26 of that year. By amazing coincidence, that was actually the month it ended (as they told us many months later).

The recession that began in July, 1990 wasn’t called until April the following year. The recession that began in July, 1981 wasn’t recognized until January of 1982. And so it goes.

Economists, it seems, are like the old joke about husbands. They’re always the last to know.

(My late friend Stephen Rousseas, an economics professor at Vassar and elsewhere, used to tell me that economists “are very good at predicting the past.” How right he was).

No one will tell us we’re in a recession until we’ve been in it for months. Are we there now?

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